India's pharmaceutical industry is emerging as a significant center of research and production for international drug companies. Anjana Pasricha reports from New Delhi on how the industry has been revamping itself since India began complying with global patent standards.

For decades, India's drug companies flourished under a law that allowed them to copy drugs developed by other companies, provided they followed a different manufacturing process. So-called "reverse engineering" enabled local companies to produce and sell medicines at a fraction of the cost in the West.

That changed when India adopted international patent standards in 2005 and passed a law to prohibit the copying of drugs patented after 1995.

But the Indian drug industry is seeing benefits rather than losses from the change. Pharmaceutical companies have joined the outsourcing trend made famous in the information technology sector.

Sujay Shetty, an industry analyst at PricewaterhouseCoopers in Mumbai, says India's compliance with patent laws made it attractive as a low-cost manufacturing and research hub for Western companies.

"It's driven by the fact that globally there is pressure on pricing, populations are aging, governments are refusing to spend as much, so what that has done is increase the business of generics … and India by far and large is the most sophisticated generic producer of them all. We see one of the direct fallouts of this globally is increased business for our generic companies," Shetty says.

The trend is already firmly established. Indian companies now have 75 plants approved to make drugs for the American market - the most outside the United States itself.

Simultaneously, says industry analyst Shetty, India is emerging as a center for research.

"The same cost pressures … will lead them to come back to India, indeed as they already are here … for clinical trials, for research and for manufacturing to take up India's high-skill base and to control their costs better actually … they need India," Shetty says.

A recent survey by PricewaterhouseCoopers says Asia is set to become a leader in production and research of drugs, as well as the world's largest market for medicines. India and China top the list of target countries for expansion by multinationals.

However, critics say while the drug industry may benefit, there could be losers around the world. For example, the Indian drug industry brought anti-retroviral drugs within the reach of millions of poor people suffering from HIV by supplying these medicines at a fraction of the cost of Western companies. Many fear that Indian companies will not be able to do the same with new drugs.